Investors are paying for the privilege of lending money to European sovereigns

Genevieve Signoret

Fixed Income

Short-term yields are negative not only for Germany (depicted below) but also for a slew of other European sovereigns. Bond guru Mohammed El-Erian explains what this means here.

Falling yields mean high valuations in local currency terms. The problem, however, for investors who measure their wealth in U.S. dollars and do not hedge their foreign exchange exposure in the derivatives market, European currency depreciation against the dollar has so far has offset these gains.